How familiar are you with the two types of bankruptcy? Did you know there are different bankruptcy laws depending on your situation? We’re breaking down Chapter 7 versus Chapter 13 bankruptcy so you can know the difference.
Chapter 7 Bankruptcy
We have shared information about Chapter 7 bankruptcy in a previous blog article, so here’s a quick recap:
- Eligibility is based on your income if any
- Allows you to erase some of your debts
- Assets must be sold and/or liquidated to put toward debt
Chapter 13 Bankruptcy
If you make above a certain amount annually, you may not be eligible for filing Chapter 7 bankruptcy. Additionally, if you’d like to keep some or all of your assets, Chapter 13 may allow you to do so. The following is the general criteria for Chapter 13 eligibility.
- Requires incoming cash flow to be eligible
- Establishes a loan repayment plan ( 3 – 5 years)
- Allows you to retain assets
There are some similarities between Chapter 7 and Chapter 13 bankruptcy, but a noticeable difference is cash flow. If you are currently unemployed or do not make enough money to repay debts in a reasonable amount of time, Chapter 7 may apply to you. If you have assets that you can part with, such as a vehicle or stocks, Chapter 7 requires you to sell those things to put money toward your debt.
If you have sufficient cash flow, Chapter 13 bankruptcy probably applies to you. A bankruptcy attorney will help you with a budget and repayment plan that helps you with missed payments while simultaneously staying current with what is due. Additionally, Chapter 13 is a good choice if you have assets you don’t want to part with, including your home if it is current on payments.
Why File for Bankruptcy?
Your bankruptcy attorney will offer legal advice regarding your financial situation. If filing for bankruptcy is the best way to either eliminate or consolidate your debt, your lawyer can help make proper arrangements on your behalf. Keep in mind that some debts are not included in your bankruptcy filings, such as student loans, child support, or back taxes.
If you find yourself unable to deal with creditor harassment for your mortgage, car loan, or other outstanding bills, consider consulting a bankruptcy attorney for guidance. While it is a decision that should not be made lightly, sometimes it is for the best.